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Gov't advised to ease control on real estate market

By Nie Peng (chinadaily.com.cn)
Updated: 2008-09-26 16:46

The Chinese government may consider easing strict controls to give the stagnant property market a much-needed boost, the 21st Century Business Herald reported on Wednesday.

The China Real Estate Association (CREA) recently called on the government to shift its policies from "strict" to "moderate" control on the property market, in a proposal to the State Council.

According to Zhu Zhongyi, vice president and secretary general of the CREA, the proposal appealed for local governments to be allowed to help the property market at their discretion, lowering taxes in real estate trading, encouraging housing needs for improving living conditions, and strengthening the industry's early warning system.

However, industry insiders and authorities have not agreed on whether to change the "strict control" policy in support of the real estate market.

Gu Yunchang, vice-chairman of China Real Estate & Housing Research Institution said policy changes were necessary.

"Those policies were made at a time when the property prices were skyrocketing," Gu said. "Things are just the opposite on the market now."

But Yi Xianrong, a researcher at the financial research center of the Chinese Academy of Social Sciences, said the current sluggishness stemmed from developers' own bad judgment of the market situation; therefore they should take responsibility for the consequences.

Others agree that strict control should continue as figures from the National Bureau of Statistics showed investment in the real estate sector jumped 22.8 percent in the first half of this year, indicating a further expansion of real estate development.

Zhu, however, explained that the current expansion was owing to the forward sale method adopted in the country, which allows developers to deliver housing to buyers one or two years after signing the sales contract. In spite of customers' reluctance to buy homes now, developers still have to honor the agreements signed before the downturn of the market.

Also, many developers only paid part of the land fees when purchasing plots. When the local government demanded full payment, they had to accelerate the pace of development to speed up capital recovery.

Zhu said he had confidence in central government adopting the proposal. The CREA submitted a proposal to the State Council at almost the same time last year when property prices were rising rapidly and policymakers adopted the association's suggestions soon after, he said.

Apart from changing market conditions, policymakers should make efforts to avoid drastic fluctuations in the property market that could have an adverse impact on the economy, Zhu warned.

The strict control policy was initiated in 2005 to stabilize the market amid continuous surge of property prices and authorities' concerns about the burst of real estate bubbles.

But the central bank's latest survey on urban depositors showed their willingness to buy homes had hit its worst low since 1999. Only 13.3 percent of those questioned said they planned to buy homes within the next three months.

The growth rate of property prices in 70 major Chinese cities has dropped for eight months in a row this year, the National Development and Reform Commission said last week, showing signs of nationwide decline after a two-year surge.

An excessive fall in property prices and sales would have at least two negative effects on the national economy, the CREA report noted: First, shrinking real estate development would harm the economy on the whole as enterprises linked to the property market could all be adversely affected. Second, a withering property market could lead to many social problems such as unfinished buildings, which would deal a heavy blow to the financial sector in particular.

Last week, a report released by researchers at the Beijing Normal University said there would be fund shortages amounting to 670 billion yuan ($98.23 billion) in the real estate industry by the end of this year, and the shortage will continue into the next year to hit 900 billion yuan.

The property sector faces worsening expectations as well, the report noted. Once the adjustment moved into the intermediate stage, researchers warned, commercial banks might suffer from bad loans that could climb to hundreds of billions of dollars.

In the light of the vague market situation, Zhu said, it would be hard to set uniform control policies for the whole country. Therefore he suggested the central government allow local authorities to adopt industry policies according to the local conditions.

However, local governments should have proper control over the pace of urbanization and real estate development to prevent problems resulting from excessive development and lack of matching facilities.